Economic Aspects of the
Chemical Industry
Joseph V. Koleske
Within the formal disciplines of science at
traditional universities, through the years,
chemistry has grown to have a unique status
because of its close correspondence with an
industry and with a branch of engineering-
the chemical industry and chemical engi-
neering. There is no biology industry, but
aspects of biology have closely related disci-
plines such as fish raising and other aquacul-
ture, animal cloning and other facets of
agriculture, ethical drugs of pharmaceutical
manufacture, genomics, water quality and
conservation, and the like. Although there is
no physics industry, there are power genera-
tion, electricity, computers, optics, magnetic
media, and electronics that exist as industries.
However, in the case of chemistry, there is
a named industry. This unusual correspon-
dence no doubt came about because in the
chemical industry one makes things from
raw materials-chemicals-and the science,
manufacture, and use of chemicals grew up
*Consultant, 1513 Brentwood Rd., Charleston, WV
25314.
together during the past century or so. In
addition, the chemical industry is global in
nature.
Since there is a chemical industry that
serves a major portion of all industrialized
economies, providing in the end synthetic
drugs, polymers and plastics, fertilizers, tex-
tiles, building materials, paints and coatings,
colorants and pigments, elastomers, and so on,
there is also a subject, chemical economics,
and it is this subject, the economics of
the chemical industry, that is the concern of
this chapter. Of course, the chemical industry
does not exist alone, rather it interacts with
many aspects of the global economy.
DEFINITION OF THE CHEMICAL
INDUSTRY
Early in the twentieth century, the chemical
industry was considered to have two parts:
the discovery, synthesis, and manufacture of
inorganic and organic chemicals. Later, and
until about 1997, the Standard Industrial
Classification (SIC) of the U.S. Bureau of the
63
64 KENTAND RIEGELS HANDBOOK OF INDUSTRIAL CHEMISTRY AND BIOTECHNOLOGY

Census defined Chemical and Allied
Products as comprising three general classes
of products: (1) basic inorganic chemicals
such as acids, alkalis, and salts and basic
organic chemicals; (2) chemicals to be used in
further manufacture such as synthetic fibers,
plastic materials, dry colors, pigments; and
( 3 ) finished chemical products to be used for
ultimate consumer consumption as architec-
tural paints, cosmetics, drugs, and soaps or to
be used as materials or supplies in other indus-
tries such as industrial paints and coatings,
adhesives, fertilizers, and explosives. The
SIC system was a series of four-digit number
codes that attempted to classify all business
by product and service type for the purpose
of collection, tabulation, and analyses of data.
It used a mixture of market-based and
production-based categories.
In 1997, the SIC classification was replaced
by the North American Industry Classification
System (NAICS).2 The system is a major
revision based on six-digit numerical codes,
and it allows for new or relatively new indus-
tries to be included in what is termed
Chemical Manufacturing. It also reorgan-
izes all categories on a productiodprocess-
oriented basis. Further, NAICS establishes
a common numerical code among Canada,
Mexico, and the United States that is
compatible with the two-digit level of the
United Nations International Standard
Industrial Classification of All Economic
Activities (ISIC).
The NAICS code for Chemical
Manufacturing is 325 and there are
49 subclassifications with four- to six-digit
codes. The four-digit codes, which are a
description of the manufacturing segments
included in chemical manufacturing, the value
of shipments, and the number of employees
in the manufacturing segment are listed in
Table 2.1 .2 Each of these four-digit segments
may have five-digit subclasses associated with
them, and the five-digit subclasses in turn
may have six-digit subclasses associated with
them. This hierarchy is exemplified for
Manufacturing Segment 325 1, which is titled
Basic Chemical Manufacturing, and one of
its sub components, Code 32519, in Table 2.2.
While it may seem that Code 325199,
All Other Basic Organic Chemical
Manufacturing, is too general in nature for
its size, one needs to consider that by delving
into the makeup of this component, about
150 individual compounds or groups of com-
pounds are found. These contain a diverse
group of chemicals including manufacturing
of acetic acid and anhydride, calcium citrate,
cream of tartar, ethylene glycol ethers,

TABLE 2.1 Chemical Manufacturing, NAICS Code 325, and Its Four-Digit Area
Components. Shipment Value and Employees are from 1997 U.S. Economic Census*
NAICS Shipments Percentage
Codea Description ofArea Value ($1000) ofTotal Employees
325 Chemical manufacturing 419,617,444 100 884,321
325 1 Basic chemical manufacturing 115,134,992 27.44 202,486
3252 Resin, synthetic rubber, artificial 63,639,476 15.17 114.792
and synthetic fibers, and filament
manufacturing
3253 Pesticide, fertilizer, and other 24,266,5 13 5.78 37,206
agricultural chemical manufacturing
3254 Pharmaceutical and medicine 93,298,847 22.23 203.026
manufacturing
3255 Paint, coating, and adhesive 26,594,550 6.34 75,100
manufacturing
3256 Soap, cleaning compound, and toilet 57,507,318 13.7 126,895
preparation manufacturing
3259 Other chemical product manufacturing 39,175,748 9.34 124,816

aCodes 3257 and 3258 were not used

 ECONOMIC ASPECTS OF THE CHEMICAL INDUSTRY 65

TABLE 2.2 Basic Chemical Manufacturing, NAICS Code 3251, and its Five-Digit
Components and Other Basic Organic Chemical Manufacturing, Code 32519, and Its
Six-Digit Components. Shipment Value and Employees are from 1997 U.S. Economic
Census*
NAICS Shipments Percentage
Code Description ofArea Value ($1000) of Tota 1 Employees
NAICS Code 3251 and Its Components
325 1 Basic chemical manufacturing 115,134,992 100.00 202,486
32511 Petrochemical manufacturing 20,534,750 17.84 10,943
32512 Industrial gas manufacturing 5,23 1,468 4.54 12,492
32513 Dye and pigment manufacturing 6,427,357 5.58 17,289
325 18 Other basic inorganic chemical 20,7 16,361 17.99 60,056
manufacturing
32519 Other basic organic chemical 62,225,056 54.05 101.706
manufacturing
NAICS Code 32519 and Its Components
32519 Other basic organic chemical 62,225,056 100.00 101,706
manufacturing
325191 Gum and wood chemical manufacturing 815,201 1.31 2,267
325192 Cyclic crude and intermediate 6,57 1,093 10.56 8,183
manufacturing
325 193 Ethyl alcohol manufacturing 1,287,273 2.07 1,890
325 199 All other basic organic chemical 53,55 1,489 86.06 89.366
manufacturing

Codes 325194 through 325198 were not used.

ethylene oxide, solid organic fuel propellants,
hexyl and isopropyl alcohols, perfume materi-
als, peroxides, silicone, sodium alginate,
sugar substitutes, tear gas, synthetic vanillin,
vinyl acetate, and so on. All these compounds
have the code number 325199. Compounds
with the code number 325211, Plastic
Material and Resin Manufacturing are about
80 in number and may be exemplified by
acrylic and methacrylic polymers; cellulose
derivatives such as acetates, nitrates, xan-
thates, and the like; phenolics, polyesters,
polyolefins, polystyrene, poly(viny1 halide)s,
polyurethanes, and, again, and so on.
The new NAICS has broadened the defini-
tion of the chemical industry, and it now is more
encompassing than in the past. The broadening
is reasonable, and it improves on the goals of
collecting and tabulating data so that it is avail-
able for study and analysis. One might say the
data could be timelier, but collecting, amassing,
and breaking down the information so it is
understandable is a difficult, time consuming
task that is dependent on many people. The
Internet is a major factor in making the data
available to the general public almost as rapidly
as it is compiled. The NAICS system is recog-
nized and accepted by the North American
countries, and the system appears to be global
in nature by being at least partially in line with
the United Nations classifications. Those inter-
ested in markets and market areas and in their
size including their relation to other markets
will find the US. Census Bureaus web site
pages well worth visiting.
THE PLACE OFTHE CHEMICAL
INDUSTRY IN THE ECONOMY
Because the chemical industry is a major sec-
tor of any advanced national economy, a fore-
cast of trends in the chemical industry must fall
within certain general guidelines that are
established by the national economy. A forecast
for the chemical industry in the United States
must be within the general boundaries set for
the overall societal, financial, environmental,
governmental, and economic forecasts for the
66 KENTAND RIEGELS HANDBOOK OF INDUSTRIAL CHEMISTRY AND BIOTECHNOLOGY
country. However, such forecasts should be
carefully considered for they may or may not
accurately predict the future.
It had been said that it was clear for many
years that certain demographic and societal
issues would have a dominant effect on the
US. economy of the 1990s. In the previous
edition of this Handbook, it was pointed out
that there was an expectation that from the
late 1980s through the year 2000 there would
be a decline in the growth of the work force in
the United States. This was predicated on the
number of women within the usual childbear-
ing age group of 18-35 and by family-size
decisions that were made in the 1960s.
Shortages of chemists, chemical engineers,
and other scientists were predicted for the
1990s. Supposedly, such predictions can be
made from census data that was obtained in
the prior two or three decades. There is a
direct relation between the growth of the
workforce and the growth of Gross Domestic
Product (GDP). Although this was the predic-
tion, it is not what happened.
During the 1990s and through the start of
the twenty-first century, due to events put in
motion during the late 1980s, the United
States and many world economies experi-
enced unprecedented growth. During this
time unemployment decreased and reached
very low percentages on an absolute and a
historical level. This factor was coupled with
significant productivity increases throughout
the economy. The productivity increases
resulted from a better-trained workforce,
from new tools such as computers and allied
software, and from just plain harder, more
conscientious working during regular and
overtime hours. An important factor
during this period of growth was that the pro-
ductivity increases were obtained without
inflation raising its ugly head. Company
mergers and the spinning off or the selling off
of business segments to stockholders or to
allied businesses played an important role
through these years. These actions resulted in
new stand-alone businesses that were oper-
ated by new owners and managers when the
units were spun off. The mergers or unit-
sales resulted in a restructuring or downsizing
as duplicated efforts were eliminated.
Productivity increased because of these
actions, and many workers were displaced.
But, the man power hungry economy quickly
absorbed for the most part these displaced
workers. The hunger for manpower was par-
tially, but importantly, related to the elec-
tronic, computer, telecommunications, and
related industries that provided many jobs
in previously nonexistent sectors. Chemicals
were used in various ways in these new
growth areas-as, for example, wire coatings,
solder masks, conformal coatings, optical
fiber coatings and marking materials, mag-
netic tape coatings, and so on.
Mergers and acquisitions certainly played a
role in shaping todays chemical manufac-
turing industry. Included among the notable
mergers are the Pfizer Inc. merger with Warner
Lambert Company. The Dow Chemical
Company acquisition of Union Carbide
Corporation, Exxon merging with Mobil, and
many others in the United States. Larger
companies acquire smaller companies to
expand business through new or expanded
opportunities, diversify, reduce research and
development expenditures, improve negotia-
tions with suppliers and customers, and
improve operating efficiency. For example, in
the water industry, Aqua America, Inc., the
largest United States-based, publicly traded
water company, acquired 29 small companies
in 2004 in line with their growth target of 25
to 30 acquisitions per year. In 2005, diversi-
fied 3M Company acquired CUNO, Inc., a
water filtration products company, to capital-
ize on the global need for water purification,
a market that is growing at more than 8 per-
cent per year. Great Lakes Chemical Corp.
and Crompton Corp. merged to form a new
company known as Chemtura Corp., a com-
pany that is focused on the futures specialty
chemical needs. In the paint and coating seg-
ment of the chemical business, major changes
have taken place through mergers and acqui-
sitions. In 1990, the five largest producers had
37 percent of the market and the ten largest
producers had 52 percent. By 2003, the top
five had 5 1 percent and the top ten had 74 per-
cent of the market3 Included in the acquisitions
 ECONOMIC ASPECTS OF THE CHEMICAL INDUSTRY
are Akzo Nobels purchases of Courtalds and
Ferros powder coating business; Dow
acquired Celaneses Taxas acrylic monomers
plant and output will be used for superab-
sorbants and paint emulsions; Sherwin
Williams acquisitions of Duron, Krylon,
Pratt & Lambert, Paint Sundry Brands (a
manufacturer of high quality paint brushes),
and Thompson Miniwax; and Valspars pur-
chase of Lilly Inc. and Samuel Cabot Inc.
In Great Britain, Glaxxo Holdings PLC first
merged with Wellcome to form Glaxo
Wellcome, this combination then merged with
Smith Kline to form GlaxoSmithKline PLC.
Malvern Instruments Ltd. In the United
Kingdom and Perkin Elmer of the United
States agreed to a collaborative sales agree-
ment that will offer customers material char-
acterization instruments of both companies:
rheology, thermal analysis, and rheometers.
Degussa AG acquired Cytec Industries hold-
ings in CYRO Industries to consolidate its
position as a leading global supplier of methyl
methacrylates. In The Netherlands, Arnhem,
Akzo Nobels Coatings business, acquired
Swiss Lack, Switzerlands leading paint com-
pany. Larger, improved efficiency companies
resulted. One result of such national and inter-
national mergers and acquisitions is a shrink-
ing of Chemical and Engineering News top
100 companies to the top 75 c o m p a n i e ~ . ~
The electronicsicomputer industry grew
rapidly during the past decade or so, and new
company names appeared during this time
period. Its growth was spurred by the
productivity increase even as it was a partici-
pant in causing the increased productivity.
Computers began to be used to control
processes and training personnel with the
skills to run such computer-operated processes
was high on many companies lists of impor-
tant projects. A decade or so ago, computers
were available in companies on a limited
basis. Today, there is a computer on essen-
tially every desk and portable computers
to carry out work during trips, and the like.
The dot com companies started their
appearance through the Internet, and they
grew rapidly. Later, when business turned
down, many of these companies disappeared-
67
they merged with or were purchased by other
companies. However, overall prosperity reigned
during this time period, and, as it did, the chem-
ical manufacturing industry, which was allied
with a broad variety of these industries, also
prospered.
At the turn of the twenty-first century, it
was becoming apparent that the economy
was at a high point and could be expanding
too rapidly. Inflation was still low, and there
was even talk that deflation might come into
play. They latter did not happen. Price-to-
earnings ratios were very high for many
companies, and it did not appear that future
growth would expand sufficiently to accom-
modate such high price-to-earnings ratios
and large additions to the work force. The
national economy, which certainly includes
chemical manufacturing, entered a recession
in March 2000. However, the economy grew
in the first three months of 2001 indicating
that the economic recovery could be begin-
ning. The improvement was led by new auto-
mobile purchases and increased government
spending. The fourth quarter of 2001 was
small and considered by some as flat, but it
built on the preceding quarter and in early
2002 there was a belief that the economic
recovery has begun.
The events of September 1 1,200 1, changed
many aspects of our lives with chemical man-
ufacturing included. The terrorist attacks
rocked many markets on a short-term basis,
but before long the markets stabilized, but did
not really grow in the recent past. Overall,
in the first half of 2002 the world economy
remained in a recession. However, because
of the constant threat of terrorism, national
corporate spending will increase as military,
security, and other government expenses
increase and transportation costs and its allied
security measures come into play. Chemical
manufacturing of basic chemical, polymer,
and pharmaceuticals are expected to increase.
Yet, there are no expected productivity
increases as was seen in the 1990s associated
with the increased pend ding.^ In early 2002,
the Chairman of the Federal Reserve
predicted that the recovery was apparent, but
would be a mild recovery.6
68 KENTAND RIEGEL'S HANDBOOK OF INDUSTRIAL CHEMISTRY AND BIOTECHNOLOGY

As can be seen from the previous discus- (NAFTA) and with the global economy. Thus
sion, economic forecasts are subject to all of the chemical manufacturing industry is
the uncertainties and unpredictabilities of worldwide and interconnected in many ways.
national, international, and societal events. These factors play important roles in the
With this in mind, at the present time the fore- importance of imported raw materials such as
cast for the ensuing part of this decade is for petroleum products and the cost of labor.
improved growth in national chemical manu- Businesses or parts of businesses can be
facturing with growth and the profit picture transported across the southern U.S. border
beginning an upturn in the second or third to take advantage of more favorable labor
quarter of 2002. (Note that in the 1980s, it costs. Through this, successful partnerships
was not predicted that the 1990s would show have been forged and welded together
strong growth, yet strong growth did take between border countries. As mentioned
place.) At present the concerns with global earlier, other partnerships are developing
terrorism, low interest rates, high but constant through purchase of assets in other countries
productivity, oil and gas prices, and other by the United States and by other countries in
factors are components of a mixture that will the United States. Today, the United States is
dictate the future. None of these factors will entrenched in the age of a global economy
remain constant. Rather, they will change and all it ramifications.
individually at times and with some factors in The United States imports and exports a
concert at other times. These variations along wide variety of raw materials and chemical
with the size of the workforce and its attitude products. Major U.S.-based chemical compa-
will dictate the future for chemical manufac- nies have manufacturing and sales facilities
turing and the global economy. abroad and a large number or foreign-based
Against this brief discussion of the general companies have similar facilities in the
demographic, societal, and economic factors United States. The U.S. economy is dependent
that govern forecasting economic prospects, a on the balance of trade, that is, on the differ-
general picture of the economy of the United ence between the dollar value of exports and
States can be given by the GDP and chemical imports. A negative trade balance means that
and allied products portion of GDP as dollars spent abroad to import goods and
described in Table 2.3. services exceed the value of goods and
This reasoning is a way to highlight the sen- services exported. In effect such an imbalance
sitivity and place chemical manufacturing has increases the cost of goods and services pur-
in the national economy, which is becoming chased in the United States and results in a net
more and more entangled with the countries inflationary effect. To a large extent during
of the North American Free Trade Agreement the 1980s, this potential inflationary effect
was offset by foreign investment in the United
TABLE 2.3 U.S. Economy and Chemical States. In the 1990s and through the early years
Manufacturing7 of the twenty-first century, foreign investment
in the United States has increased, productivity
U S . Gross Domestic Chemicals and Allied has increased without major wage increases,
Product (GDP) Products Portion of and interest rates were managed with the net
Current Dollars, GDfl Current
Year Billions Dollars, Billions result that inflation remained low.
In foreign trade, the chemical industry of
1987 4,742.5 83.8 the United States has consistently performed in
1990 5,803.2 109.9
1995 7,400.5 150.8 an outstanding manner. While the overall bal-
1996 7,813.2 153.6 ance of trade has been negative, the chemical
1997 8,3 18.4 164.8 industry has been one of the truly strong sec-
1998 8,78 1.5 164.8 tors in the economy of the United States,
1999 9,268.6 175.1
Table 2.4. Year after year, the trade balance of
2000 9,872.9 191.1
chemicals has been positive and thus has had
 ECONOMIC ASPECTS OF THE CHEMICAL INDUSTRY 69

TABLE 2.4 U.S. Balance of Trade8

Total Trade Balancea Chemical Tradeb
(Billions of Dollars) (Billions of Dollars)
Year Export Import Balance Export Import Balance
1987 250.2 409.8 - 159.6 26c 16 + 10
1990 389.3 498.3 - 109.0 39c 22 + I7
1995 575.8 749.6 -173.8 32.18 20.59 11.59
1996 612.1 803.3 -191.2 31.4 21.81 9.59
1997 678.4 876.5 -198.1 34.6 23.5 11.10
1998 670.4 917.1 -246.1 33.32 23.38 9.94
1999 684.6 1,030.0 -345.4 34.09 23.82 10.27
2000 772.2 1,224.4 -452.2 38.42 27.12 1 I .30

aInternational Trade Accounts (ITA); bChemicals-Fertilizer,-Organic, -Inorganic, and -Other;

CAmountsfor 1987 and 1990 are taken from Bailey and K ~ l e s k e . ~

a positive impact on the national economy.
When the total world export market for chem-
icals is considered, that is the sum of all the
chemicals exported by all the worlds national
economies, the U.S. chemical manufacturing
industry has held a significant market share,
about 15 percent, for the past three decades.
The export and import values for chemical
segments described in Table 2.4, chemical-
fertilizer, chemical-organic,chemical-inorganic,
and chemical-other, are detailed in Table 2.5.
The magnitude of the individual items varies
from year to year, but overall, the balance is
favorable and these four segments of chemi-
cal manufacturing are usually positive values.
It should be pointed out that various items
(plastic materials, pharmaceuticals, etc.) that
make up chemical manufacturing have been
excluded, but this was done without bias. The
four items used in Tables 2.4 and 2.5 are
directly related to what has been traditionally
known as the chemical industry. The less
favorable Total Trade Balance of the United
TABLE 2.5 Chemical Export/Import
Segments for Year 2000
Exports Imports
Chemical (Billions of (Billions of
Segment Dollars) Dollars)
Fertilizer 4.098 3.388
Inorganic 4.180 4.414
Organic 16.505 13.779
Other 13.636 5.525
States is principally due to imports of manu-
factured good and petroleum products.
To support the U.S. chemical manufacturing
economy (Code 325) in 1997 (see Table 2.1),
there was a workforce of more than 884,000
of which about one-fourth were employed in
basic chemical manufacturing (Code 325 1)
and about one fourth were employed in phar-
maceutical and medicine manufacturing
(Code 3254). The next largest area of employ-
ment, about 14 percent of the workforce, was
the soap, cleaning compound, and toilet
preparation manufacturing component (Code
3256), which was closely followed by the
polymer manufacturing area (Code 3252) at
13 percent. In such comparisons, one might
argue that the paint, coating, and adhesive
manufacturing component (Code 3255), with
about 8.5 percent of the employment figure,
should be included with polymer manufac-
turing. The remainder of the workforce is
employed in the agricultural chemical and
other chemical manufacturing components.
The value of the chemical manufacturing
business produced by this workforce was
$4 19,6 17,444,000 in 1997. To maintain
market share and grow this huge business,
Balance the companies in chemical manufacturing
(Billions of invest to various degrees in research and
Dollars) development efforts, which are carried out
+0.710 by scientists within the organizations. The
-0.234 percentage of sales varies with the particular
+2.726 component, and the pharmaceutical firms
+8.111
will spend much more than say a fertilizer
70 KENTAND RIEGELS HANDBOOK OF INDUSTRIAL CHEMISTRY AND BIOTECHNOLOGY
manufacturer. The average for many chemical
companies varies from about 3 to 5 percent
of sales. In the 1999-97 period, about seven
billion dollars were spend annually on research
and development by the chemical industry.
CHARACTERISTICS OF THE
CHEMICAL INDUSTRY
I nve st m en t Trends
The U.S. chemical industry is the worlds
largest and it accounts for about one fourth of
global chemical production. The industry,
which is a part of the non-durable goods
manufacturing industry, is a high capital
investment business. Capital spending by the
chemical and allied products industry in
the United States has been a sizable percent-
age of that spent for all manufacturing. In
1999, non-durable goods manufacturers spent
about $80 billion on capital goods. This was a
decrease of about 7 percent from that of 1998,
which was approximately $85 billion. Most of
this decline can be attributed to decreased
spending by the basic chemical industry. In
1996 and 1997, capital expenditures in the
chemical industry were about $15.5 and
$16.4, respectively. During the late 1980s and
1990s, a significant portion of these capital
expenditures was made for pollution control
and other environmentally related efforts.
Much of the capital investment in the chem-
ical industry is spent for facilities to produce
major chemicals in enormous quantities. The
huge volume of the chemicals produced and
consumed is reflected in the size of plants
being built to achieve the required economies
of scale, which in turn allow for competitive
pricing. The fact that such economies are
achieved is seen in the relatively modest
increases in chemical producers price indices
relative to the inflation levels in the general
economy. The competitive nature of the
chemical business also plays a role in this
matter of price. (Economy of scale refers to
the relative cost of building a larger plant; a
rule of thumb is that the relative cost of build-
ing a smaller or larger plant is the ratio of the
productivities of the two plants being consid-
ered raised to the 0.6 power. In other words,
the unit cost of producing a chemical
markedly decreases as the size of the plant
producing it is increased, providing the plant
can be operated near capacity.)
Along with these very large plants and the
associated enormous investments, most of the
chemical industry is characterized by high
investment versus low labor components in
the cost of manufacture. The National
Industrial Conference Board statistics list the
chemical industry as having one of the high-
est capital investments per production worker.
The investment per worker in a base petro-
chemicals olefins plant may be in the neigh-
borhood a half-million dollars. A profitable
chemical specialties manufacturer may have
capital investments as low as 10 percent of
such values per employee. Of course, sales
per employee are also important and large.
From Table 2.1, it can be seen that annual
sales per employee in the overall chemical
manufacturing area (Code 325) are about
$475,000. Such ratios vary with the market
segment and depend on the labor intensity
needed within the segment. For example, the
number is about $569,000 for basic chemical
manufacturing (Code 325 l), $652,000 for
agriculture chemicals (Code 3253), $459,541
pharmaceuticals (Code 3254), $354,000
coating chemicals (Code 3255), and so on.
Note that number for pharmaceutical sales per
employee is quite close to the overall chemi-
cal manufacturing sales per employee. The
average hourly pay of production workers in
the chemical industry was $18.15 in 2000.
Commercial Development
and Competition Factors
During the earlier period of the chemical
industrys development, chemical companies
were generally production oriented, wherein
they would exploit a process to produce a
chemical and then sell it into rapidly expand-
ing markets. The investments and plant sizes
required for participation were a small frac-
tion of that required to participate today. Raw
materials were often purchased to produce
chemical intermediates for sale. Small-sized
 ECONOMIC ASPECTS OF THE CHEMICAL INDUSTRY 71

units operating in small manufacturing facili- A major trend in industrial chemistry has
ties do not present the obvious problems of been an emphasis on improved processes for
environmental pollution, a factor about which the production of major chemicals such as
everyone has become more aware in the past ethylene, propylene, vinyl chloride, styrene,
two or three decades. A new investment in alkylene oxides, methanol, terephthalates, and
chemical production facilities today must so on. The necessity for higher efficiency,
include a sizable proportion of the total outlay lower cost processes has been accentuated by
for pollution abatement and control of envi- the relatively slow growth rates of major
ronmental intrusion. The chemical industry industrial chemicals over the past two decades
spends about $5 billion annually on pollution or so. The fertilizer portion of the agricultural
abatement. chemicals market as described in Table 2.6 is
As the chemical industry has grown, there an example of the slow growth.
has been a strong tendency toward both How well has the chemical industry devel-
forward and backward integration. Petroleum oped? At the beginning of the twenty-first
producers have found opportunities based on century the United States accounted for
their raw materials-natural gas, condensates, 27 percent of the worlds chemical produc-
and oil-to move into chemical refining. tion, making it the worlds largest chemical
Chemical companies, on the other hand, have producer.l0 In 2000, chemical shipments
moved to assure their access to low-cost raw reached $460 billion, and, at this level, it pro-
materials through contract purchases and vides about 1.2 percent of the national GDP
hedging contracts. Similarly, producers of and almost 12 percent of the manufacturing
basic plastic materials have forward integrated GDP. As such, it is the largest factor in the
to produce compounder materials and fabri- manufacturing segment of the economy. The
cated products such as consumer items, fibers, chemical industry continues to grow, and it
and films. At the same time, fabricators have attained an all-time high in profits by netting
installed equipment to handle and formulate or $44 billion. Globally, chemicals are almost a
compound the basic plastic materials and thus $1.5 trillion dollar business.
provide a ready, constant supply at the lowest With its large size, the chemical industry is
possible cost. With the global economy in a large user of energy, and it consumed about
place and relative ease of moving around the 7 percent of all domestic energy and about
world, large investments are now made in far- 25 percent of all energy used in manufacturing.
off countries such as Malaysia and Saudi In 1985, the industry used 3,567 trillion Btu, in
Arabia, for example, to be near raw material
supplies and to meet large market needs.
With ever-larger investment costs and TABLE 2.6 Annual Production of
increasing cross-industry competition, Inorganic Chemicals Used in the Fertilizer
markedly greater sophistication has been Industry (Note Break in Years between
required of marketing analysis coupled with 1996 and 1993)*
cost analysis when selections of investment Production Amount
opportunities are made. The enormity of (Billions of Pounds)
investment capital required in todays market-
Chemical 1997 1996 1993
place to successfully participate does not
permit multiple approaches for the private Ammonia 34.68 35.85 34.39
investor. Consequently, a high degree of Ammonium Nitrate 17.21 17.00 16.56
Ammonium Sulfate 5.42 5.32 4.87
market orientation tends to predominate in Nitric Acid 18.87 18.41 16.51
the chemical industry along with increasingly Phosphoric Acid 26.32 26.42 23.03
targeted and pinpointed research and devel- Sulfuric Acid 96.04 95.54 79.68
opment programs. In 2000, the industry Super Phosphates 20.86 21.09 17.6
spent about $3 1 billion on such research and and others
Urea 15.33 17.10 16.66
development efforts. l o
72 KENTAND RIEGEL'S HANDBOOK OF INDUSTRIAL CHEMISTRY AND BIOTECHNOLOGY
1991 usage increased to 5,051 trillion Btu,
and in 1994 it had increased still fbrther to
5,328 trillion Btu." The energy is used to
supply heat and power for plant operations
and as a raw material for petrochemicals,
plastics, and fibers production. Feedstocks
represent a little less than half of the total
usage, a number that varies from year to year.
Thus, the chemical industry is a key com-
ponent in the U.S. economy. It converts raw
materials such as gas, oil, condensates, water,
metals, and minerals into more than 70,000
products that are used in a variety of ways. In
some fashion, this industry impacts the daily
lives of everyone. Industrial customers for
chemicals are many, but some of the major
ones are apparel, plastic and rubber products,
petroleum refining, textiles, pulp and paper,
primary metal, and the like.
Information technology and E-commerce
have become increasingly important assets to
the chemical industry. Spending on informa-
tion technology reached $10.2 billion in 2000
and this represented a 75 percent increase
over such expenditures of 1990.1 Selling via
the Internet or E-commerce resulted in sales
of $7.2 billion in 2000. Projections indicate
that this type of business will grow rapidly and
are expected to reach $150 billion by 2006.
This means about one third of shipments will
be via E-commerce transactions in five years.
Tech no Iog ica I 0ri en t a t io n
The chemical industry is a high technology
industry, albeit now is more marketing
oriented and competitive than in its earlier
period of development. Chemists and mat-
erials scientists held about 92,000 jobs in
2000. Over half of these are employed in
manufacturing companies and most of these
companies are in the chemical manufacturing
industry, that is in firms that produce syn-
thetic materials, plastics, drugs, soaps and
cleaners, paints, industrial organic and inor-
ganic chemicals, and other chemicals. 12(a)
Other chemists and chemical engineers are
found in various government Departments
and Agencies, in teaching, and in research,
development, and testing firms. The latter
firms are becoming more and more a growth
area in the chemical industry. A bachelor's
degree in chemistry or a related discipline is
the minimum education requirement for these
technical positions. To work and grow in
research positions, a Ph.D. is required. There
will be strong demand for those people who
have a masters or Ph.D. in the future with job
growth concentrated in the pharmaceutical
companies and in research, development, and
testing services firms.
The contemporary scientist or engineer
engaged in research and development in the
chemical industry is a highly trained individ-
ual who is a part of a high-investment occu-
pation. Since about the mid 1950s, much of
chemistry has become increasingly an instru-
mental science, and the instruments routinely
used by investigators are highly sophisticated,
reliable, and costly. In the laboratory, a scien-
tist has available mass, infrared, visible,
and ultraviolet spectrometers; various chro-
matographs; physical and chemical property
determination devices such as those used for
molecular structure, size, and conformation
determinations; and others used for reaction
kinetic studies. Pilot plants and many produc-
tion facilities are highly instrumented and
automated. The basic scientist doing research,
laboratory workers, pilot plant and process
development chemical engineers, and plant
production workers require at a minimum
access to excellent computer facilities. All
engineers and scientists require computers to
analyze the massive amounts of data that are
generated and to aid in the design of manu-
facturing processes and equipment.
Employment of chemists and chemical
engineers is expected to grow at about a
10-20 percent rate between 2000 and 20 10.12(a)
Predictions indicate that job growth will be
concentrated in drug manufacturing and in
research, development, and testing services
companies. Demands will be for new and bet-
ter pharmaceuticals, personal care products,
and specialty chemicals designed to solve spe-
cific problems or applications. Demand will be
high for personnel who have a Ph.D. degree
and the opportunities will be in biotechnology
and pharmaceutical firms. An aging, better
 ECONOMIC ASPECTS OF THE CHEMICAL INDUSTRY
informed population will want products that
treat aging skin, that are milder on the body,
new and innovative drugs, reliable medical
devices, and so on. The population
in general will be interested in chemical
processes that are more benign in nature to pro-
duce all types of products and thus in an indus-
try that is more friendly to the environment.
In the year 2000, the median salary
of chemists was $50,080.12(a)The lowest
10 percent earned less than $29,620, and the
highest 10 percent earned more than $88,030.
The middle 50 percent earned between
$37,480 and $68,240. It is interesting to point
out that the median annual salary of chemists
employed in the Federal Government was
$65,950 or about 30 percent higher than the
overall median. In 2001, chemists in non-
supervisory, supervisory, and managerial
positions in the Federal Government averaged
$70,435.12(a)As is the usual case, chemical
engineer salaries were higher than those of
chemists by about 10-25 percent.12bMedian
experienced and starting salaries for the vari-
ous degrees can be found in Table 2.7.
In 2003, median starting salaries for indus-
trial chemists were $32,000 (B.S.), $44,500
(M.S.), and $63,000 (Ph.D.).12CThe Ph.D.
starting salary actually dropped from $67,000
in 2002 due to Ph.D.s finding academic
TABLE 2.7 Chemist12(a)and Chemical
Engineer12(b)
Salaries in 2000
Year 2000
Overall Median Inexperienced Median
Degree Salary Starting Sala ry
Chemists
Bachelor $55,000 $33,500
Master $65,000 $44,100
Ph.D. $82,200 $64,500
Chemical Engineers
Bachelor
a $5 1,073
Master a $57,22 1
Ph.D. a $75,52 1
aThe median annual salary for all chemical engineers
was $65,960. The salary of the middle 50% ranged
between $53,440 and $80,840. The salary of the lowest
10% was less than $45,200 and of the highest 10% was
greater than $93,430.
73
employment. In 2003, 35.3 percent of new
Ph.D. graduates went into academic positions
compared with 20.5 percent in 2002. A 2005
salary survey of chemical industry profes-
sionals with a Bachelors degree in chemical
engineering with 22 years of experience in the
chemical industry (pharmaceuticals, organic
chemicals, construction, and consulting) indi-
cated that the average salary was $85,234.12d
the 1205 nationwide respondents were male,
had an average age of 47, and rated their over-
all job satisfaction as satisfied. During
2004, about 85 percent of the participants
received a raise and about 65 percent also
received a cash bonus. Health insurance costs
increased with many companies requiring
employees to pay a larger portion of the insur-
ance costs. The satisfaction portion of the sur-
vey indicated that challenging work was the
most important factor (44 percent of
responses) and other factors such a salary and
benefits (17.5 percent), job security (13.5 per-
cent), advancement opportunities (7.4 per-
cent), recognition (12.6 percent), and other
(5.1 percent) were secondary in nature.
Historical
How did the chemical manufacturing industry
get its beginning? To get this answer, we need
to go back to the latter part of the eighteenth
century.13 The availability of alkali or soda
ash (sodium carbonate) for the growing man-
ufacture of glass, soap and textiles in France
was becoming a major concern. At that time,
the chemical was obtained from plant materi-
als, principally from wood ashes that were
leached with hot water to obtain potash and
from marine plants such as barilla, which
grows mainly along the Spanish Mediterranean
coast and in the Canary Islands. Other plant
sources existed. The main exporter of soda
ash was Great Britain with whom France was
at odds and there was concern about the
chemicals availability. In 1783, the French
Academy of Sciences was offered a hand-
some prize by ~~~i~ XVI develop a simple
process for decomposing sea On a large
scale and securing alkali from it. Eight years
later Nicholas Leblanc, a 49-year-old French
74 KENTAND RIEGELS HANDBOOK OF INDUSTRIAL CHEMISTRY AND BIOTECHNOLOGY
physician, devised a scheme to commercially
obtain soda ash from sea salt. The process
became known as the Leblanc process, and
this process is considered the basis for
development of the first chemical industry.
For almost a century, this process was the
most important method known for produc-
ing chemicals. Basically, Leblancs process
involved reacting sodium chloride with
sulfuric acid to produce sodium sulfate. The
product was then reacted with calcium
carbonate and carbon to form a black ash
that contained sodium carbonate and other
compounds. The black ash was extracted
with water followed by an evaporation
process to obtain soda ash.
Leblancs process had many disadvantages; it
was complicated was dirty and polluting, and
was materials and fuel inefficient. This set other
scientists to working on development of a new
process. In about 1872, Ernst Solvay developed
what became known as the Solvay process, and
this resulted in establishment of the French
firm Solvay & Cie. By 1890 the Solvay
process dominated the worlds alkali produc-
tion. l 4 Leblancs process was obsolete.
Obsolescence and Dependence
on Research
The high technology level that character-
izes the chemical industry, and which is
reflected in heavy research and development
investments, generally concerns discovery
and development of new products as well as
improvements in the manufacture of known
products. New product discovery and devel-
opment may be typified by a new pharma-
ceutical product for a specific disease, by
a stealth aircraft and all its special polymer
and composite needs, by development of a
new non-polluting technology for a known
process, a uniform molecular weight polymer
designed and made by nanotechnology, and
so on. Improvements in the manufacture of
known products might be typified by pro-
ducing a modified form of a pharmaceutical
that is easier to dissolve, by a new or
modified higher efficiency catalyst for a
known process, by toughening a brittle plastic
material, by improving the strength of a
composite, and so on. The development of a
new, lower cost process for a commercial
product can permit development of a prof-
itable opportunity or it can spell disaster for a
company with existing investment in a plant
made obsolete by the competitors new
process as in the preceding soda ash example.
Major reductions in manufacturing cost can
be achieved, for example, by reducing the
number of reaction steps required in a
process, by changing to a lower cost or more
available raw material, or by eliminating by-
products and co-products, costly separation,
and environmental intrusions. The ability of a
process scheme to contain or avoid a pollutant
can be a deciding factor in continuance of a
manufacturing operation. At times new regu-
lations, such as the Clean Air Act (CAA), or
shortages can spawn new ideas and technolo-
gies if the people involved are astute and react
positively to the new, developing environ-
ment. The brief discussion of Leblancs
process being replaced by Solvays process
for soda ash is an example of how economic
consequences can change if a competitor
finds a process better than the one being prac-
ticed. The following detailed examples will
make the matter even more clear.
Acetic Acid. Acetic acid production in the
United States has increased by large numbers
in the last half century, since the monomer has
many uses such as to make polymers for chew-
ing gum, to use as a comonomer in industrial
and trade coatings and paint, and so on. In the
1930s, a three-step synthesis process from
ethylene through acid hydrolysis to ethanol
followed by catalytic dehydrogenation of
acetaldehyde and then a direct liquid-phase
oxidation to acetic acid and acetic anhydride
as co-products was used to produce acetic acid
H,SO,/H,O
CH, =CH, ,C,H,OH
C,H,OH C u / C r , ~ ~ 3 ~ ~ ~
CH,CHO [I, C ~+ (CH,CO), =~o ~
Then, in the 1940s, a major process change
was introduced. In this new process, butane
 ECONOMIC ASPECTS OF THE CHEMICAL INDUSTRY
was directly oxidized to acetic acid and co-
products such as methylethylketone.
PI
C,H,,-CH,COOH + CH,COC,H, + others CH,OH + CH,COOH+CH3COOCH,
The novel synthesis required fewer process
steps, and this resulted in lower costs and
investment. In 1969, another advance was
announced-the synthesis of acetic acid from
methanol and carbon monoxide with essen-
CH,OH + CO -
tially no by-products or co-products. 15,16
IiRh CH,COOH
The use of readily available raw materials and
absence of co-products reduces production
costs and investment needed for distillation
and other separation systems. Such simplifica-
tion results in a very attractive process in an
industry where the principally accepted meas-
ure of business quality is return-on-investment.
Acetic Anhydride. Acetic anhydride is
required as a process intermediate in acetyla-
tions. To obtain acetic anhydride from acetic
acid, acetic acid is first pyrolyzed to ketene,
which then reacts with recovered acetic acid
to yield the anhydride.
CH,COOH Heat *CH, =C =0
CH,=C=O + CH,COOH+ (CH,CO),-0
In 1980, the Tennessee Eastman unit of
Eastman Kodak announced that it would
begin construction of a facility to make acetic
anhydride from coal, which was readily avail-
able at reasonable c o ~ t . ~This
, ~ decision
reflected a changing of the raw materials base
of much of the chemical industry due to such
factors as the rising cost of natural gas and
petroleum and the large coal reserves of the
United States.
In the new Eastman process, synthesis gas
(carbon monoxide and hydrogen) is made
from coal. Then, from the generated synthesis
gas, methanol was prepared. (Prior to this
-
time, methanol had been made from methane,
i.e., natural gas.)
CO + 2H, CH,OH
75
Methanol was next reacted with acetic acid to
form methyl acetate.
+ H,O
Acetic anhydride was then obtained by the
catalytic carbonylation of methyl acetate with
carbon monoxide.I6
CH3COOCH3+ CO +CH,CO-0-OCCH,
There are two major points that make this
process attractive. First, the raw material base
of synthesis gas is coal. The second point is
avoidance of the energy-consuming manufac-
ture of ketene by pyrolyzing acetic acid.
Vinyl Chloride. The increase in the produc-
tion of vinyl chloride, which is the principal
monomer for poly(viny1 chloride) plastics
and various vinyl copolymers that are used in
vinyl flooring, shower curtains, car-seat uphol-
stery, house siding, pipe, beverage can coat-
ings, and so on, is an even more spectacular
example. This polymer is used in multibillion
pound quantities. It is an interesting sidelight
to point out that the polymer has poor thermal
stability, and its huge penetration into the mar-
ketplace is attributable to the development of
highly efficient thermal stabilizers.
During the early monomer development in
the 1930s, vinyl chloride was produced by
means of a catalytic addition of hydrogen
chloride to a~ety1ene.I~
HgCl
CH=CH+HCl *CH, = CHCl
Later, what was called a balanced process
was introduced. In this process, chlorine was
added to ethylene and ethylene dichloride was
produced.
CH, =CH, +C1, [olicu* CH,ClCH,Cl
The ethylene dichloride was then cracked to
vinyl chloride and hydrochloric acid with the
hydrochloric acid recycled to produce vinyl
chloride from ethylene as shown above.
CH,ClCH,Cl Heat* CH,=CHCl+HCl
At this point in time, vinyl chloride was being
produced from chlorine, acetylene, and ethyl-
ene. After these processes, a catalytic oxychlo-
rination has been developed in which vinyl
76 KENTAND RIEGELS HANDBOOK OF INDUSTRIAL CHEMISTRY AND BIOTECHNOLOGY

chloride is produced from ethylene and hydro- industry. Before, around 1970, almost all
gen chloride in the presence of oxygen.20,21 (between 90 and 95%) industrial coatings
were applied at low-solids (about 10-20%)
CH, =CH, + HCl [olcu* CH, =CHCl +H,O
contents from solvents. Many trade or house
If desired, the hydrochloric acid can be paints were also solvent based, since aqueous
obtained via cracking of ethylene dichloride. latex technology did not yet have its dominant
The oxychlorination process freed vinyl chlo- position. Solvents were inexpensive and they
ride production from the economics of a more did an excellent job of dissolving the high
costly raw material, acetylene. Deliberate molecular weight polymers needed to obtain
acetylene manufacture is energy intensive and good performance characteristics. The high
relatively expensive. By-product acetylene molecular weights used necessitated the large
from gas cracking is less expensive, but it has quantities of solvent to be used-about 4-9 lb
not been available in sufficient supply for the of solvent were venting to the atmosphere for
large, approximately billion-pound-per-year each pound of final coating film.
plus, vinyl chloride production units. Then in the early 1970s, two factors
During the long development and commer- affected the coatings industry. One of these
cialization of poly(viny1 chloride) into one of was cartel oil pricing-both unexpected
the major plastic materials, several basic and quickly imposed. This was a factor
processes of making the polymer evolved. In that increased solvent cost and potentially its
all of these processes, vinyl chloride was han- availability in needed quantities. At almost
dled as a liquid under pressure. Other than the the same time, Government regulations
relative ease with which the monomer could requiring less solvent usage (the CAA) were
be free radically polymerized, vinyl chloride imposed on the industry. Solvent cost was not
was regarded as an innocuous, relatively inert a major problem-just raise prices, but many
chemical. During the 1960s, the monomer coatings are not inelastic commodities and
sold for five or six cents a pound. Because of there still was the threat of non-availability.
the low cost, it was uneconomical to recover The availability of oil to manufacture solvents
and compress the monomer for recycle during was a totally different matter, and anyone
stripping and drying operations at the end of who suffered through the gasoline shortages
the process. The monomer was often vented of this time knows well what effect oil avail-
into the atmosphere. ability can have on an economy. Also, govern-
Then, in the 197Os, a number of poly(viny1 ment regulations were not just a temporary
chloride) producers were completely sur- measure. Many of the regulations were diffi-
prised when it was found that long-term (20- cult to meet and could not be met with the
year) exposure to vinyl chloride could cause technology in hand.
rare forms of tumors.,, After the discovery Here a large industry (NAICS Code 3255)
that vinyl chloride was a carcinogen, venting that represented about 6 percent of all chemi-
was not permissible. Containment and recov- cal manufacturing was being asked to change
ery of the monomer was mandatory. As a the way they had been doing business for
result, some older processes and manufactur- many, many years. Some companies
ing facilities could not be economically mod- responded well, but others thought solvents
ified to incorporate containment, and as a were too important to literally be taken out of
result such operations were discontinued. This such a large industry. Many companies inno-
case is but one example of the impact that vated and came up with radiation-curable
necessary and regulated environmental con- coatings, powder coatings, high-solids coat-
trols can have on manufacturing processes ings, two-package coatings, and others. The
and operations. new technologies did not take over the mar-
ketplace overnight, but with time, each found
Coatings Technology. Environmental regu- a niche and in so doing took away a portion of
lation also had a major impact on the coatings the original market. Today one does not find
 ECONOMIC ASPECTS OF THE CHEMICAL INDUSTRY 77
0 CH(CH3)OOH + CH3CH = CH,
low-solids, solvent-borne coatings in the mar-
ket to any great extent. One does find compa-
nies that have changed the nature of their
business favorably by innovating and chang-
ing, that have lost market share by taking a
wait and see attitude, and that are new on
the scene and growing. Thus, increased raw
material pricing, shortages-real or created,
and regulation can have a positive effect on
the overall chemical economic picture.
Propylene Oxide. Propylene oxide is
another basic chemical used in manufacturing
intermediates for urethane foams (cushioning
and insulation), coatings, brake fluids,
hydraulic fluids, quenchants, and many other
end uses.23The classic industrial synthesis of
this chemical has been the reaction of chlo-
rine with propylene to produce the chloro-
hydrin followed by dehydrochlorination with
caustic to produce the alkylene oxide, propy-
-
lene oxide, plus salt.
CH3CH = CH, + C1, + H,O CH,CH(OH)CH,Cl
+ CH,CH\ -/CH, + Salt
CH,CH(OH)CH,Cl
0
In this reaction sequence, both the chlorine
and the caustic used to effect the synthesis are
discarded as a valueless salt by-product.
A more economic process has been commer-
cialized. In one version, the hydroperoxide is
produced by catalytic air-oxidation of a hydro-
carbon such as ethylbenzene (see top of page).
Reaction of this hydroperoxide with propylene
yields propylene oxide as a co-product.
This direct peroxidation scheme can be car-
ried out with other agents to give different co-
products such as t-butanol or benzoic a ~ i d .
CH3CH\ - /CH, +
0
0 CH(CH,)OH
When the economics of the direct peroxida-
tion system are balanced, a significant cost
reduction in the preparation of propylene oxide
is achieved by eliminating the co-product, salt,
which is of low to nil value and thus it presents
a disposal problem coupled with all of the
related environmental ramifications. Note that
in the previous reaction scheme the weight of
salt is almost the same as the weight of the
epoxide produced and thus great quantities of
salt would be produced. In addition, the process
can be designed to produce a co-product that
can be used or sold as a chemical intermediate.
For example, in the case of using isobutene
as the starting hydrocarbon, the by-product is
t-butanol, which can then be converted to methyl
t-butyl ether, which is a gasoline additive.
RamiJications. If a company is in the busi-
ness of making and selling products such as
those used in the above examples, that is, acetic
acid, vinyl chloride, and propylene oxide, as
well as other chemicals and if it has plans to
stay in business and to expand its facilities and
workforce thereby serving growing markets, it
must have at least economically competitive
processes. Today, this means being competitive
with not only any new process developed in the
United States, but also with any new process
technology developed in the global economy.
Another need for market maintenance and
growth is a management system that is for-
ward-looking, keenly aware of potential com-
petitive threats, and ready to change directions
when needed. The same management team
must maintain a highly skilled research,
development, and engineering staff to provide
the new products and processes as well as
product and process innovations and thereby
create and maintain the pipeline to future
~sales,
~ , ~ growth,
~ and profitability as existing
78 KENTAND RIEGELS HANDBOOK OF INDUSTRIAL CHEMISTRY AND BIOTECHNOLOGY

TABLE 2.8 Sales for the Top 10 Global Not noted above is the profound effect that
Chemical Companies in 2000t6 environmental concerns have on new products
and processes. It was mentioned earlier that the
2000 Chemical Sales
Company (Billions ofDollars~ Rank in 999 chemical manufacturing industry spends about
five billion dollars annually on pollution and
BASF 30.8 1 environmental control. Thus, the entire staff of
DuPont 28.4 2
Dow Chemicala 23.0 4 an organization must be aware of these costs
Exxon-Mobil 21.5 5 and have concerns for the environment when
Bayer 19.3 3 new products and processes are created.
Total Fina Elf 19.2 11
Degussa 15.6 9
Shell 15.2 7 THE FUTURE
ICI 11.8 6
British Petroleum 11.3 10 What will this huge manufacturing giant
called the chemical manufacturing industry
asales numbers were before the merger with Union look like five or ten years from now? That
Carbide Corp. Merger is expected to raise Dow Chemical
to the No. 1 position. changes will be made is certain, and an abil-
ity to predict and anticipate those changes and
to guide the industry or segments to certain
changes will certainly bode well for the eco-
products or processes become obsolete. nomic health of any particular company.
Anticipation of market needs must be recog- It may be recalled that earlier in this chapter,
nized by both the scientific and management it was mentioned that more and more sales
components of a successful firm. In the year of chemicals would be done via E-commerce
2000 the top ten global companies in sales are on the Internet. If the projections are cor-
listed in Table 2.8.26 rect, there will be a compounded annual
The companies spending the most for growth rate of 66 percent in chemical
research and development are given in E-commerce-from $7.2 billion in 2000 to
chronological order in Table 2.9.27 $150 billion in 2006. Such sales will be

TABLE 2.9 Research and Development Spending by Chemical

and Pharmaceutical Companies2
Spending as
Spending in Millions of Dollars % of Sales

2000 1999 1998 1997 1996 2000

Chemical Companies
Dupont 1,776 1,617 1,308 1,116 1,032 6.3
Dow Chemical 892 845 807 785 76 1 3.9
Rohm and Haas 259 236 207 200 187 3.8
Union Carbide 152 154 143 157 159 2.3
Eastman Chemical 149 187 185 191 184 2.8
Air Products and Chemicals 124 123 112 114 114 2.3
International Flavors 123 104 98 94 94 7.7
Pharmaceutical Companies
Pfizer 4,435 4,036 3,305 2,536 2,166 15.0
Pharmacia 2,753 2,815 2,176 2,144 1.936 15.2
Merck 2,344 2,068 1,821 1,684 1,487 5.8
Ely Lilly 2,019 1,784 1,739 1,382 1,190 18.6
Bristol-Myers Squibb 1,939 1,843 1,577 1,385 1,276 10.6
American Home Products 1,688 1,740 1,655 1,558 1,429 12.7
 ECONOMIC ASPECTS OF THE CHEMICAL INDUSTRY
carried out through buyers and sellers of
chemicals as they develop agreements on
purchases; cost estimates including the carrier
method-land water, truck, train; custom
matters such as documentation, regulatory
fees and taxes; insurance; warehousing mat-
ters; and so on. This will have an economic
effect on the industry.
The coating and paint industry has under-
gone huge changes in the past two decades,
but there probably will be further change as
the new technological areas are sorted out. In
paint or trade sales, it would appear that aque-
ous latexes will dominate the industry for
the foreseeable future. It would take a major
breakthrough to dislodge them from their
place. The industrial-coating industry and
their customers must continue to sort through
a number of new technologies-conventional
solvent-based, high-solids, powder, radiation,
water-borne, two-package, and others-in the
future. In the past some technologies have
been given emphasis at coating companies
because they fit existing technology, but they
are not necessarily the final winners. Powder
coating has captured more than 10 percent of
the industrial coating market, and it will prob-
ably grow in the future but perhaps not as rap-
idly as it did in the past decade. Radiation
curing appears to be poised for rapid growth.
It is on an upsweeping growth curve, and if
new products, new end uses, and interest
through meeting attendance is any measure,
this technology will have a significant portion
of the market five-ten years from now.
The opening of trade with China has
resulted in several chemical company expan-
sions in that country and nearby countries. In
2005, the two national chemical giants, Dow
Chemical Company and Dupont Company
have large-scale plans for investment in China.
Dow is planning a large coal-to-methanol-to-
olefins complex that includes chlor-alkali
facilities that will take five to ten years for
completion. Dupont has recently doubled its
investment in China and plans to spend
another $600 million BY 2010, a portion of
which may go to build a titanium dioxide
plant. Dupont employs about 5000 people on
Mainland China and recently built a Research
79
and Development center near Shanghai. In
2005, Dupont will also build a laboratory in
Japan to facilitate worldwide technical
approvals for automotive coatings and to sup-
port home-country assembly operations. The
laboratory will be established by Dupont and
operated in cooperation with Shinto Paint
Company.
In the pharmaceutical area, there are many
new compounds that will reach the market-
place in the near future. One in particular is
insulin for diabetics that can be inhaled or
taken orally rather than by injection. The for-
mer is in final testing stages and could be on
the market in the very near future. The oral
type many take longer. Either of these will be
blockbuster drugs and will mean major
sales, growth, and profit for the winning com-
pany or companies. The revolution that has
taken place in automated drug synthesis and
screening will continue and improve. Workers
entering the industry or relocating will be
expected to have knowledge of parallel and
recombinational synthesis methods,28 or they
will be rapidly trained within the company in
the area. Such screening methods and facili-
ties can screen 200,000 drug candidates in a
single day.29This technology is so useful that
it will also creep into other areas of chemical
manufacturing that can benefit by screening
large numbers of candidate materials as, for
example, the paint, coating, and adhesive area.
Interrelated with the pharmaceutical indus-
try is the biotechnology area. Biotechnology
products or products derived from biotech-
nology processes, are expected to account for
30 percent of the total chemicals market by
2010. Large national and international chem-
ical companies are getting started and have a
position in the biotechnology area. Examples
of such companies are The Dow Chemical
Company, DuPont Company, and Monsanto
Company in the United States and Bayer AG,
BASF AG, Alusuisse Lonza Group AG, and
Degussa AG in Europe. Biotechnology offers
both cost-effective and environmentally
friendly technology and products. The tech-
nology will produce proteins and vitamins for
animal feed; genetically modified vegetative
plants that will resist drought, insects, and
80 KENTAND RIEGELS HANDBOOK OF INDUSTRIAL CHEMISTRY AND BIOTECHNOLOGY
cold; new enzyme controlled processes for
production of specific chemicals, new fibers
for textiles that are derived from renewable
raw materials and are biodegradable. Such
agro-growth aspects will result in significant
losses in other agrochemicals areas such as
herbicides and insecticides as resistant, modi-
fied plants are developed.
Research, development, and testing will be
carried out more and more at independent
facilities according to Federal Government
reports, and this function will be a signifi-
cant growth area. This is related to the high
cost of specialized investigative tools, which
can be shared by a number of companies.
Also important is the ability to temporarily
hire highly skilled personnel to carry out
testing and developmental efforts when they
are needed rather than have them as perma-
nent members of a firms staff. The inde-
pendent agencies are the ones who will be
able to set up the combinational programs
for some of the chemical manufacturing seg-
ments so set-up costs, in effect, are shared by
a number of companies. These programs are
expensive to develop and maintain. Many
smaller firms would not be able to afford the
technology unless some centralized, inde-
pendent source was available to allow them
to share the cost rather than the whole cost
burden.
Composites have not been previously
mentioned, but they form an important area
that is sizable and that will grow in the future.
These graphite- or glass-reinforced materials
are useful in many markets that need strong,
shaped articles including the aircraft/
aerospace, automotive, recreation, general
industrial, and similar markets. In addition to
strength, composites often offer weight sav-
ings plus the ability to rapidly produce com-
plex-shaped, small to large articles.
Energy sources continue to be highly
important. Oil prices have recently skyrock-
eted making gas-to-liquid technology by
means of syngas technology take on a new
i m p ~ r t a n c e . ~At
~ , todays
~ oil prices, gas-to-
liquid is becoming quite attractive. Renewable
energy sources such as hydropower, biomass,
wind, and solar photovoltaics are also receiv-
ing a great deal more attention. Although such
energy sources only accounted for about 8 per-
cent of energy consumption early in the 21st
century,32the field is rapidly growing. Major
oil companies are investing in wind power gen-
eration to ensure their future growth. For exam-
ple, Royal DutcWShell Transport is concert
with The Netherlands power company Nuon
N.V. recently announced that 36 three-
megawatt wind turbines located about six to
eleven miles (10-18 km) off the Dutch coast
will be built and should be in commercial oper-
ation in 2006.33 Wind and solar renewable
energy have a combined compound annual
growth rate of 30 percent on a global basis.32
The same article indicated that $20.3 billion or
about 16 to 17 percent of total world invest-
ment in power generation equipment was
invested in developing renewable energy in
2003. In a general sense, renewable energy is
becoming more affordable, and as fossil fuels
become increasingly scarce and high priced,
such sources, as well as replacement ethanol
from grain, will take on more and more impor-
tance and will aid in providing a cleaner envi-
ronment. The high price of oil also makes
development of oil sands in Canada and else-
where viable energy sources. Some plants are
now on stream and production will be
markedly increased by 2010 to 2012 as huge
capital investments are made by companies
such as Canadian Natural Resources, EnCana,
and Suncor.
Nanotechnology has great promise for the
chemical industry. This is an emerging tech-
nology whose aim is to place atoms and mol-
ecules in particular arrays, a technique termed
positional assembly, and to have this done
repetitively through ~elf-replication.~~ This
sounds more like science fiction than chem-
istry. But, nanotechnology already produces
significant sales, and the sales are predicted
to grow from a base of $200 million in 2002
to $25 billion by 2012.35This is an astounding
62 percent compounded growth rate for
10 years.
What is nanotechnology? Imagine having a
machine that can go forward, backward, right,
and left as well as up and down at various
angles. Now imagine that this machine is
 ECONOMIC ASPECTS OF THE CHEMICAL INDUSTRY 81

very, very small-in fact, so small that it
is approaching atomic dimensions and it is
measured in terms of nanometers. A nanome-
ter is 1 X lo p 9 meters, and we certainly can-
not see things this small. However, regardless
of these difficulties, we want to build and
control this machine-that is, have it do
whatever we want it to do, which is to place
atoms and molecules in particular arrays so
we end up with a desired product. Still not
satisfied, we want the machine to do this over
and over and over again.
One might ask why we want to do this.
We all know that everything is made up of
atoms. Chemicals are everywhere and in
everything. The difference in the carbon in
coal and in diamonds is the way the atoms of
carbon are arranged. Arrange the atoms prop-
erly and a worthless pile of carbon becomes a
precious diamond. If we were able to arrange
the atoms in air, dirt, and water into a desired
configuration, it would be possible to make,
for example, carrots, beets, potatoes, and so
on. At present, the transformations are made
by nature, using a gene system to combine the
ingredients in the proper way. Properly align
the atoms of a material that is to be used as
a filler or reinforcing material, and one can
envision super strong composite materials
resulting. If one were to rearrange the
atoms of sand and in so doing add a few
trace elements, the end result could be a
computer The goals of nanotech-
nology are to:
0 Arrange every or almost every atom in a
desired structure in its proper place,
0 Make effectively any structure that can be
atomically specified and that does not
violate laws of chemistry and physics, and
0 Have manufacturing costs that are basi-
cally energy and raw material costs.
The other concepts associated with nanotech-
nology are those described above, positional
assembly and self-replication. Nanotechnology
is currently being used for light-emitting poly-
mer films, in computer applications, electri-
cally conductive adhesives, and other areas.
These are but only a few of the potential
areas for chemical manufacturing during the
first decade of the twenty-first century. Most
probably, many of the products and processes
that will be in place in 2012 or so cannot even
be imagined today.
New emerging markets for nano-based
products include nanomemory products used
in mobile communications and computers
wherein it is expected the market will grow to
$8.6 billion by 2007 and $65.7 billion by
201 1; nanosensors for medical, homeland
security, and aerospace applications wherein
the market is expected to be $446 million in
2007 and should grow to $5.6 billion in 201 1;
nanoengineered display technology for roll-up
displays using plastic electronics, other plat-
forms, and carbon nanotubes for large-size,
high-definition television sets should grow to
$1.6 billion in 2007 to about $7.5 billion by
201 l.37A very recent article38 indicated the
global market for nanophotonic devices is to
reach $9.33 billion by 2009; photonics is the
technology of generating and controlling light
and using it to conduct information. All in all,
one finds nanotechnology being mentioned,
discussed, and applied in application after
application, technical, scientific meetings are
being organized and held, and nanotechnology
along with its architecture certainly will grow
in importance in a wide variety of uses.39

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